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Tough Times at Jabil

Weakening in the consumer business is going to derail Jabil's growth.

I'd like to write that electronic designer/manufacturer Jabil Circuit(NYSE:JBL) reported results for its second quarter ended Feb. 28 last week. Unfortunately, it really just reported a result. Because Jabil is involved in the same type of stock-option mess that many other companies find themselves in, all we know is that revenue reached $2.9 billion -- good for 27% year-over-year growth. Investors were also told that the immediate future is bleak.

There are lots of moving parts here that make Jabil's incomplete financials particularly vexing. The firm is undergoing restructuring that involves moving some manufacturing to low-cost regions; it's been dealing with several operational issues it since early last year; and it's still digesting its recent acquisition of Green Point.

The outlook over the next couple of quarters certainly isn't great -- unless, like me, you don't own these shares, but would be happy to buy them at a bargain price. Management expects overall revenues to be flat (compared with the previous quarter) over the next two quarters. The main culprit is Jabil's consumer business -- responsible for 36% of fiscal 2006 revenue. Compared with last year, the consumer biz is doing a belly flop. Instead of the 25% sequential growth it registered from Q2 to Q3 last year, Jabil is expecting the consumer business to fall 10% from the just-completed Q2 to Q3 this year.

Why the weakness? Management gave several reasons during its conference call, but the most significant in my opinion is that Jabil is "exercising tighter pricing discipline." I'm guessing that means its customers are demanding bargains. I also have to wonder whether some of its customers already have enough phones lining the shelves. The press has spilled considerable ink regarding excess cell-phone inventory, and both Nokia(NYSE:NOK) and Motorola(NYSE:MOT) are Jabil customers.

While Jabil claims that it's poised for strong growth to resume next year, and that margins will be fine, its apparent inability to maintain pricing worries me, given that this is a low-margin business even during good times. Fools, I'm in no hurry to jump into these shares.

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Fool contributor Dan Bloom has no financial interest in any company mentioned.